July 28, 2021
Senate HELP Committee Chair Introduces Retirement Bill Aimed at Women, Part-Time Workers
On July 22 U.S. Senator and Committee Chair Patty Murray (D-WA) reintroduced the Women’s Retirement Protection Act (WRPA) in the Senate Health, Education, Labor and Pensions (HELP) Committee along with 24 Democratic co-sponsors. Similar to the bill Murray has introduced in years past, the key policy provision is the application of spousal consent rules to defined contribution retirement plans.
Murray has been a longtime proponent of extending spousal consent rules — which generally require a participant to obtain spousal consent to most forms of distribution — to defined contribution plans. Most defined contribution plans are not subject to the same spousal consent rules as are applied to defined benefit plans, and for many years participant and women’s groups have argued that this exemption is outdated, and the spousal consent rules should be extended to apply to all defined contribution plans now that they have grown from a supplemental savings vehicle to the primary way Americans are saving for retirement.
Some in the business community have expressed concern about the extension of spousal consent rules, citing potential delays in distributions and the possibility that the spousal consent rules could interfere with key 401(k) features, such as hardship distributions and loans (unlike the 2019 version of the bill, they are not exempt fro the current proposal) and force companies to take on the additional fiduciary duty of selecting annuities to provide. The fiduciary relief provided in the Setting Every Community Up for Retirement Enhancement (SECURE) Act provides a fiduciary safe harbor for choosing an annuity provider but does not provide relief in choosing a particular annuity option. (The bill addresses the latter issue by not requiring annuities.) Another cited concern is the possibility that applying the spousal consent rules to defined contribution plans would raise costs, especially since spousal consent must be witnessed in the physical presence of a notary or a plan representative. (As reported in the June 25 Benefits Byte, the IRS enacted and then extended temporary relief that allows remote witnessing of spousal consent.) The extent to which and how best to address these concerns are likely to be part of the debate in Congress over the legislation.
Regarding spousal consent, the WRPA would preserve existing situations where defined contribution plans are subject to the spousal consent rules (such as when the participant selects a beneficiary other than the spouse) and apply a modified version of the spousal consent rules to other defined contribution plans. These plans would be subject to the same spousal consent rules as defined benefit plans, with the following modifications:
- Spousal consent would not be required for required minimum distributions.
- Under the current spousal consent rules, in the absence of spousal consent, distributions must generally be made in the form of a qualified joint and survivor annuity (QJSA), but the bill provides several other options including periodic payments over the joint life expectancy of the participant and spouse.
- Under the current spousal consent rules, there are certain logical exceptions, such as where the spouse cannot be located. The bill modifies those rules to add an exception where “due to exceptional circumstances, requiring the participant to seek the spouse’s consent would be inappropriate.”
- A specific individual cause of action is authorized for violations of the new requirements.
The WRPA also includes provisions extending part-time employee eligibility for retirement plans. Prior to the SECURE Act, employers could exclude certain part-time employees when providing a plan to their workers. Except in the case of collectively bargained plans, the SECURE Act amended the Internal Revenue Code to require employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one year of service requirement (with the 1,000-hour rule) or three consecutive years of service where the employee completes at least 500 hours of service.
In the case of employees who are eligible solely by reason of the latter new rule, the employer is not required to provide any otherwise applicable matching or nonelective contributions and may elect to exclude such employees from testing under certain nondiscrimination and coverage rules. Sweeping retirement reform legislation proceeding through both chambers of Congress (see the May 21 Benefits Byte) would reduce the three consecutive years rule to two consecutive years.
Regarding part-time employees, the WRPA would:
- Include the two consecutive years rule in ERISA for 401(k) plans and 403(b) plans. This would make the eligibility rule for part-time employees an enforceable right, as opposed to only a tax qualification requirement. In addition, the bill would add a civil penalty enforceable by the Department of Labor (DOL) for violations of the rule of up to $10,000 per year per employee.
- Add an additional Code provision to Section 410(a) addressing eligibility issues.
- Apply the part-time employee rule to 403(b) plans (including non-ERISA 403(b) plans) in addition to 401(k) plans.
Additionally, the WRPA would:
- Require financial service providers to include links to Consumer Financial Protection Bureau materials when selling financial products and services.
- Improve women’s financial literacy through grants to community-based organizations.
- Provide grants to community-based organizations to enable them to help low-income women and survivors of domestic violence obtain qualified domestic relations orders (QDROs).
The Council anticipates that the HELP Committee will mark up a retirement bill in the fall in connection with the Retirement Security and Savings Act (RSSA) and other retirement reform bills (see the May 27 Benefits Byte).